While the medium-term and long-term outlooks remain bullish, stocks are in a rather precarious short-term situation. The major index ETFs are overbought, sentiment is excessively bullish and Greek lawmakers have yet to pass the austerity measures required to receive EU aid. Greek legislators and the EU are likely playing a game of chicken. A Greek default and exit from the Euro is not in Europe's best interest. Such events would negatively impact US equities as well. Default and exit, however, are likely the best options for Greece because it would mean a clean slate. Even though the outcomes will affect economies and banking systems, the current situation is highly political. My best guess is that some sort of aid package will ultimately be delivered and Greece will remain in the Euro until the next round of negotiations. Greek parliament will vote this weekend. Bloomberg notes: "Greek Finance Minister Evangelos Venizelos said the parliamentary vote set to begin this weekend amounted to a ballot on euro membership". Once again, Europe is facing another "critical" moment and we could see some big moves early Monday. Having said that, stocks are still overbought and sentiment is still excessively bullish. Earnings season is also winding down. SPY is up over 11% from its December 19th low and has yet to correct or consolidate. The 19-Dec trendline, broken resistance and the 3-Feb gap mark first support. Key support remains at 130 and RSI support at 40.
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The 20+ Year T-Bond ETF (TLT) remains in a zigzag downtrend since 19-December and the swing within this downtrend is down. The ETF hit a new low for the move and is short-term oversold, just as stocks are overbought and the Euro hangs in the balance. Treasuries are the flight-to-safety trade and drama in Euroland could boost TLT. First resistance is set at 117 and key resistance remains in the 120.5 area.
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No change. With another surge in the Euro, the US Dollar Fund (UUP) broke flag support and moved to a new low for the year (2012). Broken support and the mid January trendline combine to mark first resistance at 22.05. A surge back above this level would negate the flag breakdown. Key resistance is set at 22.15 and RSI resistance at 60. A move above these levels is needed to fully reverse the downtrend.
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Oil moved higher and the US Oil Fund (USO) is challenging resistance. The trend since early January is down with a series of lower highs and lower lows. The swing within this downtrend is up, but USO is meeting resistance in the 38.25-38.50 area. This is a make-or-break point. A follow through breakout would be bullish, but failure and a break below 37.30 would reverse the six day upswing. RSI is also at a moment-of-truth as it trades near 60. The Euro, Dollar and stock market will influence oil.
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A bounce in the Dollar and fall in the Euro could also affect gold. The Gold SPDR (GLD) surged to 168 in late January and then stalled the last two weeks. A consolidation within an uptrend is positive, but a break above triangle resistance (170.20) is needed to signal a continuation higher. Key support remains at 166. A break below this level would argue for a deeper correction that would retrace4 a portion of the prior advance (±151 to ±170).
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Key Economic Reports:
Fri - Feb 10 - 09:55 - Michigan Sentiment
Charts of Interest: Tuesday and Thursday in separate post.
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
